Oil giant Royal Dutch Shell (LON:RDSB) have updated their 2020 outlook following the spread of the coronavirus.
In a brief update that covered Shell’s business units including integrated gas, upstream and oil products, the main take away was a possible $400-800 million in impairment charges.
“As a result of COVID-19, we have seen and expect significant uncertainty with macro-economic conditions with regards to prices and demand for oil, gas and related products.”
“The impact of the dynamically evolving business environment on first quarter results is being primarily reflected in March with a relatively minor impact in the first two months,” Shell said in a statement.
The adverse update was a result of a drop in oil prices causing Shell to make amendments to their average oil price forecasts for early 2020. A price war between Russia and Saudi Arabia threatens to increase oil supply just at the time demand is set to be severely reduced by coronavirus, driving prices lower.
The oil products businesses was also expected to see weaker margins in the refining business. In terms of production, Shell said they expected output to be between 2,650 and 2,720 thousand barrels of oil equivalent per day
The update comes shortly after Shell announced they would be cutting costs and stopping their share buyback programme in an effort to conserve cash.
In a prior statement, Ben van Beurden, Chief Executive Officer of Royal Dutch Shell said he was confident Shell could successfully navigate the slump in prices and demand.
“As well as protecting our staff and customers in this difficult time, we are also taking immediate steps to ensure the financial strength and resilience of our business,” he said.
“The combination of steeply falling oil demand and rapidly increasing supply may be unique, but Shell has weathered market volatility many times in the past.”
Shares in Royal Dutch Shell (LON:RDSB) rose 6% in early trade on Tuesday following the annoucement.